Market players head into this 4th of July trading week, facing a heightened sense of awareness that the story for stocks is about as unsatisfying as the Sopranos' series finale.
While situations like this are what investors look for – grabbing stocks when out of favor and at lower prices – it is important for investors to stay overly cautious and wait for prices to stabilize before initiating new positions. At this moment, the trend is certainly downward and low participation this week will not help the cause for bulls.
The Federal Reserve board also hurt the cause for bulls last week by leaving interest rates unchanged and issuing a statement of their inflation concerns that was about as informative as my weekly trip to the grocery store to buy milk at $3.80 a gallon. Of course, of little interest to Bernanke and his crew is the continued housing slump and self-imposed sub-prime mortgage mess that this illustrious group created when they raised rates in the first place, rates that killed credit-challenged home buyers in the last few years.
Since I wrote the call to add positions to short the major market averages 10 days ago, the Dow Jones Industrials has dropped roughly 250 points or almost 2%, with the SP500 following suit down about 30 points. Oil prices have revisted the $70 per barrel mark, interest rates have crept even higher as evidenced by treasury yields, and downward earnings revisions for stocks have outpaced higher estimates.
So what should you do with all these negative factors?
As a day trader, I am able to take advantage of the down days just as much as I am able to benefit from the up days. My short term trading ussually revolves around volatile stocks, indexes and ETFs. However my long term investing strategies see great opportunities in areas that have been bucking the downtrend, and this summer I hope to buy stocks as they are falling.
The industries and stocks I like right now are agricultural products (MON), utilities (UTH), envronmental services (WMI), oil services (OIH), financial services (NYX), and some select technology plays (CSCO, AAPL, YHOO).
Since I am overall bearish in the near-term and looking to hedge any long positions in my portfolio, I like the ETFs that short the major market averages (DXD, SDS, QID).
Investors hoping for a Summer rally after the holiday week when earnings season kicks off are likely to be disappointed. They are better off waiting and seeing what the results look like this quarter to guage when the market will react and head to new highs. This trader doesn't see it happening till the end of the year.
Performance table of highlighted posts:
Post Date Post Item Post Price* Current Price** Return Pct.*** Time Period****
07/02/07 YHOO NA $27.13 NA NA
07/02/07 AAPL NA $122.04 NA NA
07/02/07 CSCO NA $27.85 NA NA
07/02/07 NYX NA $73.62 NA NA
06/22/07 BX ($35.98) ($29.27) 18.6% 1 Week
06/20/07 QID $45.50 $45.69 0.4% 2 Weeks
06/20/07 SDS $51.01 $52.72 3.4% 2 Weeks
06/20/07 DXD $48.82 $50.15 2.7% 2 Weeks
Combined OIH October Strangle 2.0% 3 Weeks
06/08/07 OIHVK $6.20 $3.80
06/08/07 ODLJO $8.80 $11.50
Combined OIH July Strangle 13.6% 3 Weeks
06/08/07 OIHSM $5.20 $1.10
06/08/07 OIHGL $11.00 $17.30
06/08/07 OIH $167.03 $174.73 4.6% 3 Weeks
06/06/07 FIW $21.18 $21.73 2.6% 3 Weeks
06/06/07 PHO $20.35 $20.92 2.8% 3 Weeks
06/06/07 CGW $25.68 $25.57 -0.4% 3 Weeks
05/30/07 WMI $39.27 $39.07 -0.5% 4 Weeks
04/13/07 UTH $144.21 $141.65 -1.8% 11 Weeks
04/05/07 MON $58.30 $67.58 15.9% 12 Weeks
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* Post Price is the price as quoted in post or the highest price on the day of post/long positions or the lowest price on the day of post/short positions. () indicates short position.
** Current prices based on the close of trading June 29th, 2007
*** Return percentages do not include dividends, fees or commissions.
**** Time period is the time since the original post, rounded off to the nearest weekly period.